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Finland trying to find growth outside Nokia

HELSINKI — Ari Koskinen counts himself lucky after he got a job at Finland’s national jobless association.

The 37-year-old technology specialist is helping local groups support the country’s 9.8 percent unemployed as the northernmost Euro member grapples with the decline in its two main industries, technology and paper.

“Unemployment brings many difficulties — alcoholism, health problems,” Koskinen said in a phone interview from Helsinki. “Finns are vulnerable to depression when the jobs go and there’s no more work.”

Finland, one of six AAA rated Euro countries, may face a similar fate to junk-graded Portugal in the next decade unless it finds new growth industries soon, said Timo Tyrvaeinen, chief economist at Helsinki-based Aktia. Mobile-phone maker Nokia has announced 1,900 job cuts in Finland since last year, or 10 percent of its local workforce, as its market value plunged almost 50 percent since January. Without growth, Finland must raise debt to pay for Europe’s fastest-aging population.

“Finland has an underlying competitiveness problem and an imbalance in public finances exacerbated by the aging population,” Tyrvaeinen said by phone. “In 10 years, we could have similar problems to those Portugal is facing now.”

The number of workers for every pensioner will drop to three from four by 2015. That’s about five years earlier than in the rest of Europe, Luxembourg-based Eurostat estimates. Debt will swell in 2011 to more than 50 percent of gross domestic product from 34.1 percent three years ago, according to the European Commission.

“The growth of debt must be stopped,” said Jan von Gerich, chief analyst at Nordea Markets in Helsinki. “Ireland had a AAA rating, a lower debt level than Finland and a surplus in its public sector, but then the crisis hit and the situation changed rapidly.” Moody’s Investors Service cut Ireland to junk on July 12, arguing the euro member’s $119 billion bailout may not be enough to keep it afloat.

While Ireland’s plight was linked to overleveraged banks, its example remains relevant for economies where growth can’t keep pace with government spending, von Gerich said.

Europe’s debt crisis has shown that failure to tackle fiscal weakness in time can force governments to impose severe austerity measures later. Finland risks having to “take emergency action” to fix its finances if the country’s budget drain isn’t fixed “promptly,” Bank of Finland Governor Erkki Liikanen said on June 15.

The six-party coalition government, led by Prime Minister Jyrki Katainen, may struggle to find the unity needed for cuts. Katainen, who formed his Cabinet in June after two months of talks to keep the euro-skeptic True Finns from office, needs to persuade lawmakers it’s right to back bailouts while enduring cuts at home.

Finland’s $255 billion economy, home to Europe’s two biggest papermakers, Stora Enso and UPM-Kymmene, was built on its forests. Since the 1960s, the country’s pulp industry has languished as emerging markets produce cheaper timber. Forestry’s share of the economy dropped to 2.4 percent in 2009 from twice that in the late 1970s. It employed 2 percent of the workforce in 2009, from almost 5 percent four decades ago, government data show.

Nokia, based near Helsinki in Espoo, took off in the 1990s to become the world’s largest mobile-phone maker. The company’s success helped pull Finland out of recession. After contracting some 6 percent in 1991, the economy grew 4.5 percent on average in 1994 through 2000. At the peak in 2000, Nokia accounted for 4 percent of Finland’s GDP, according to Jyrki Ali-Yrkkoe, an economist at Helsinki-based researcher ETLA.

Now, the company’s days as the powerhouse of Finnish growth are over. Its profit sank 74 percent since 2007 and its share of the economy has dwindled to 1.6 percent as Nokia struggles to compete with Apple’s iPhone and devices using Google’s Android software.

Nokia said in April it will slash 7,000 jobs globally. Though some 3,000 of those positions will be transferred to technology-consulting company Accenture, the economic fallout is clear.

The Nasdaq OMX Helsinki index is down 15 percent this year, the second-worst performer among developed countries after Greece. Nokia has plunged 48 percent in the period, versus a 2.1 percent dip in Europe’s benchmark Stoxx 600 Index.

“None of the traditional industries are in the kind of a growth mode” that helps the economy, said Pasi Kuoppamaeki, chief economist at Sampo Bank, a unit of Danske Bank. “Without growth, the situation is quite hopeless.”

While the Finance Ministry estimates Finland’s economy will grow 3.9 percent this year after expanding 3.6 percent in 2010, it will hardly make up for the 8.2 percent contraction in 2009.

Aktia’s Tyrvaeinen said there’s still time for Finland to change course. Programs to foster startups are running at Aalto University and at Nokia itself, with the aim of replicating the success of “Angry Birds” creator Rovio Mobile.

Finland can also fall back on the industrialized world’s second-best educated population after South Korea, according to the Organization for Economic Cooperation and Development. And the government has stepped up support for entrepreneurs.

Tyrvaeinen says that may help Finland escape its reliance on a handful of companies and avoid the mistakes of its past.

“It’s a bit like in investing, where diversifying is wise,” he said.